Energy Demand, Sources and Rate Trends

CHAPTER 1

ENERGY DEMAND, SOURCES AND RATE TRENDS

ENERGY USAGE TRENDS

n California, rolling blackouts have darkened some of the richest cropland, most complex high-tech factories and busiest streets in America. These blackouts were part of a statewide energy crisis that had been years in the making and was triggered by a flawed deregulation plan. It enraged consumers and businessmen alike and pushed Californias two largest utilities to insolvency. It was a threat to the states $1.3 trillion economy which is the sixth largest on Earth and the total U.S. economy as well. The California crisis was part of a nationwide energy problem where natural gas rates have risen to the highest level in years. San Diego was the first city to encounter the dynamics of an open, competitive power market. It tested Californias ability to provide reliable, affordable power in a state whose economy is increasingly dependent upon electricity. Power bills jumped 300% in San Diego for many residential customers. The Cambridge Energy Research Associates stated that the California crisis brings up many questions about our entire energy infrastructure. The California energy deregulation plan was supposed to cut electric rates, but instead it more than tripled what some California consumers must pay due to a tenfold increase in wholesale prices. Instead of taking regulators out of the utility business, the plan has done just the opposite. Consumers, power suppliers, legislators and regulators must share some of the blame. Consumers are asked to conserve more since Califor-

2003 by The Fairmont Press.

New Technologies for Energy Efficiency

nia failed to complete a single large powerplant over a period of 10 years, while Californias high tech business boomed and the overall state economy expanded by 34%. New construction was one of the aims in 1995 when the state launched the nations first and most sweeping electric deregulation plan which was endorsed by utilities and lawmakers as well as environmental and consumer-advocate groups. The goal was to break up the major monopolies of Pacific Gas & Electric (PG&E) and Southern California Edison (SCE). They would be allowed to purchase and market power in California as well to do business in other states. PG&E now owns 30 plants outside California. In 1998, it paid a then-record $1.8 billion for a plant near Pittsburgh. SCE paid $4.8 billion for plants from Chicagos Commonwealth Edison. SCE gets more than half its earnings from deregulated plants in other states. Its Mission Energy unit owns more than 40 global plants. Out-of-state operators were expected to bring down electric rates in California which were among the highest in the nation. But, California dismantled its private power-generating industry without securing adequate power supplies. The three largest utilities, which include PG&E, SCE and San Diego Gas & Electric, sold generating plants to outsider utilities like Duke Energy of Charlotte, NC, and Reliant Energy of Houston. PG&E sold more than $1.5 billion of their generating plants and SCE sold about $1.2 billion. The state would not allow long-term purchasing agreements based on the fear that they would be locked into fixed-price contracts as prices dropped. Power purchases had to be made on the spot or cash market where prices were low at the time. The utilities accepted this limitation, along with a rate freeze. For a while, they enjoyed making a profit, but the states demand for electricity was growing fast and its generating capacity was not growing bigger. California imported almost 25% of its power from suppliers in the Southwest and Pacific Northwest. This connection has been torn with the growing demand in those areas. There was also a price spike in natural gas which is used in about half of Californias generating plants and accounts for more than half of the price of electricity. As the rising demand for power met its restricted supply, the wholesale price of energy jumped from less than 5 cents per kWh in January 2000 to nearly 40

2003 by The Fairmont Press.

Energy Demand, Sources and Rate Trends

cents per kWh in December 2000. The results were predictable. Unable to pass along high costs to homes and business, PG&E and SCE sustained losses and owed more than $12 billion to their banks and power providers. Generating companies became reluctant to supply them with more power. Californias power demand has grown nearly 25% since 1995. Texas has built 22 new plants since 1995, with 15 more coming on-line during 2001. Californias Independent System Operator (ISO) manages the power grid and must find about 6,000 megawatts a day outside the state. Typical of the frustrations that power companies faced was the proposed Coyote Valley generator plant that Calpine wanted to build in San Jose, in the heart of the Silicon Valley. The plant would light 600,000 homes in a region where the City Council vetoed the project. The plant also faced opposition from Cisco Systems, a leading producer of Internet hardware, which was also San Joses largest employer. Cisco claimed that the powerplant would be an eyesore next to an industrial park that the company planned to build for some 20,000 employees. Over 40 plants which would add 22,600 megawatts of generating capacity are proposed for California. About 40% of the states capacity comes from facilities built more than 30 years ago, making them prone to equipment problems. Compounding the problems of California was a shortage of rain and snow in the Pacific Northwest, which depleted hydroelectric plants of the water they need to generate exportable power. The California grid lost about 3,000 megawatts. Northern California was also squeezed by bottlenecks in supply lines. Path 15 runs through the states Central Valley and places a constraint on the northern half of the state that makes blackouts more certain under high demand conditions. The power grids hourly needs are projected by computers. Weather is a major factor since a few degrees can make a difference in power requirements. Supply and demand can shift rapidly and companies may have just moments to complete a process or project before they must cut their power. The crisis heightens when workers return to their houses and turn on lights, computers, TVs and cook dinner while the clothes dryer is on. If they waited until 8:00 p.m. to use some of those appliances it

2003 by The Fairmont Press.

New Technologies for Energy Efficiency

would have a major impact. When shortages persist for more than an hour, the utilities darken another area. At the San Francisco Zoo, the staff had to rush an endangered species of 150 fish from Madagascar to the zoo hospital to rescue them from cold water. Many states are opting for the merits of a free market for power but will they be plagued by blackouts, near bankrupt utilities and high electricity bills? Nearly half of the states including New York, Pennsylvania, Virginia, Texas, Arizona and Oregon are in various stages of deregulating their power delivery system. New York City faces an electricity shortage and in the Northwest, Oregon and Washington, which have imported power from California in the winter, have found themselves exposed to a limited supply. With demand booming, reserves have declined from 40% excess two decades ago to 15% today. The nations old outdated transmission grid is not built to handle so much long-distance traffic. Increasing demand does not necessarily attract new suppliers since the cost of entry, multibillion-dollar powerplants and years of waiting for approval and returns on investment is not attractive. This forces real competition away. A few states, such as West Virginia, Oklahoma, Arkansas, Nevada and New Mexico, have already halted the process of deregulating. The Center for the Advancement of Energy Markets argues that the California downfall is not an indictment of electricity deregulation but a lesson on how not to do it. Pennsylvania started deregulation about the same time as California. It is often cited as a model of deregulation. More than 500,000 customers, 10% of the states total, have switched to one of the new suppliers and the state has seen a $3 billion savings on electric bills. Pennsylvania utilities were not required to sell the bulk of their powerplants and become middlemen. They were also allowed to lock in long-term contracts instead of relying on the daily spot market. Pennsylvania also ensured that there were enough players to make a truly competitive market (200 buyers and sellers). Instead of trying to go it largely alone as California did, Pennsylvania is part of an integrated, five-state trading market, including New Jersey and Maryland. Texas operates its own electricity grid, which makes it less vulnerable to bottlenecks in the national system. It also imports less than 1%

2003 by The Fairmont Press.

Energy Demand, Sources and Rate Trends

of its power. Like Pennsylvania, Texas did not require utilities to sell off their plants, and it did allow long-term contracts. Texas has encouraged powerplant construction. Its environmental regulations are less strict than Californias, and its approval process is more streamlined. Since 1995, over 20 new plants have come on-line and almost that many should be up and running in a few years. With that much capacity, state officials have guaranteed a 6% rate cut with retail deregulation taking effect. Other deregulated states have experienced price movements in the other direction. In Massachusetts, consumers were promised 15% cuts, but rates have increased as much as 50%. A report from the Union of Concerned Scientists inferred that this might not be due entirely to the result of market forces. Since deregulation began, plants have been shut down for maintenance nearly 50% more often than before. Producers point to stricter environmental rules as the reason for the increases. New York City and parts of nearby Westchester County were among the first areas in the country to have retail rates entirely deregulated. Rate increases have been as much as 30%. Much of the increase is due to rising costs of the gas and oil that power generators in the Northeast use. This forced the New York State public service commission to consider the implementation of a temporary, $150 per megawatthour wholesale price cap. In New York City, old transmission lines are strained to bring in enough power to foster the booming economy. Getting a power plant built anywhere near the city can be a difficult task. In the last 15 years before the state deregulated, only one new large plant went up. There are now dozens of applications in the pipeline. In spite of community opposition, the New York Power Authority has placed ten 44-megawatt natural-gas-powered generators around the city. New Yorks approach is just one of many that states are using. Ohio opened up its market in 2001 and the state is encouraging groups of customers including schools, churches, neighborhoods and cities to band together in pools to negotiate with suppliers. In New Jersey, one of the new energy providers closed because of high costs, so officials are trying to reduce the paperwork required for a customer to leave their old utility. Some New England states require utilities to keep adequate reserves to limit supply problems.

2003 by The Fairmont Press.

New Technologies for Energy Efficiency

More innovative measures may be needed to allow deregulation to work. Consumers might choose from a set of customized electricity packages, in much the same way as all the long-distance offerings. With the help of the Internet as a real-time monitoring tool, consumers could use their washer or dryer at the cheapest time of the day. The analog meters at peoples homes are an archaic part of a century old power system. Suppose we had free Sundays or late night rates? The North American Electric Reliability Council estimates the U.S. will have enough electricity to keep up with demand even if only half of all the proposed plants are actually built. But, many may not make it through the approval process. A national energy consulting firm, Cambridge Energy Research Associates, describes the power industry in the United States as being in a radical shift from regulatory to competitive market forces. In California, the shift may be in reverse, away from markets and back to government intervention. At a time when power was never more critical to the states and nations economic growth, a reverse restructuring is occurring in California where economic theory and political reality are at odds. The states powerful investor-owned utilities are trying to achieve a balance between pro-market and pro-government forces. The seeds of Californias energy problems were planted long before deregulation. Environmental concerns, poor planning, and uncertainty about the rules of deregulation forced Californias power supply to grow far slower than demand, which was driven by an expanding population and its increasing use of energy using technology. In 1996, a Republican governor and Democratic-controlled state Legislature came together to push electricity deregulation in AB 1890, a bill that went through both houses without a dissenting vote in less than a weeks time. The flawed 1996 deregulation scheme exacerbated the problems. It included a pricing system that prevented utilities from locking in long-term supplies at fixed prices and from passing on higher fuel costs to customers. Without rising prices, consumers had no incentive to reduce demand and utilities could not pay their soaring wholesale power bills. That scared away some power suppliers and created the financial crisis. The biggest flaw in Californias deregulation plan was the decision to force utilities to buy all of their power needs one day in advance from a newly formed entity called the California Power Exchange. It was

2003 by The Fairmont Press.

Energy Demand, Sources and Rate Trends

hoped that the exchange would provide the most transparent prices, since every buyer and seller had to operate through it. Any power that did not get bought through the exchange would be purchased on a last-minute basis the following day by another entity called the Independent System Operator (ISO). This two-step arrangement encouraged generators to offer less power to the exchange and instead to wait and sell power to the ISO, which would have to pay higher prices. Lawsuits by consumer groups and others allege that the electricity marketers engaged in unlawful market manipulation but investigations have failed to prove collusions. One investigation concluded that the soaring prices could not be explained by such factors as high demand and rising fuel and environmental costs. It was concluded that power was being withheld inexplicably, at the exact time at which prices were most vulnerable to manipulation. Long-term contracts would take the uncertainty out of pricing and the Power Exchange is being phased out. One of the hardest-hit power users in California was California Steel Industries Inc., a steel producer that lost power 14 times. The path to full competitive markets could take a detour in which the government steps in until the path eventually rejoins a smoother, improved road to deregulation. Congress is unlikely to provide a national electricity deregulation bill, the push will continue to be toward more market influence and less regulatory intervention. In California the main players in deregulation have been the governor and several state agencies, California Public Utilities Commission, California Energy Commission, California Independent System Operator, California Power Exchange and the California Electricity Oversight Board. Private-sector power generators include AES Corporation, Duke Energy, Dynegy Corporation, NRG, Reliant Energy, Southern Company and the Williams Company.

THE POWER FUTURE

Some economists see the rest of the West using well-functioning wholesale markets with California off on its own. California business officials believe in a free-market power structure, but support govern-

2003 by The Fairmont Press.

New Technologies for Energy Efficiency

ment intervention to stabilize wholesale prices and curb market power. In the short term there is too much market power that needs curbing but the answer in the long term is more supply. Besides accelerating the construction of new powerplants, there is the overhauling of the statechartered independent electrical transmission grid operator (Cal-ISO) and the state-chartered wholesale power market, or power exchange (Cal-PX). Revising AB 1890 to allow a transition period for regulated utilities moving to a more deregulated world is also needed. The use of public dollars to finance development, private-public partnerships, or to capitalize publicly owned utilities are other issues. New energy supplies are critical, with excess supplies, the market will self-correct. Without adequate supplies, the situation will worsen, the wholesale market will be stunted, and consumers will be in an artificial world of subsidized retail rates. Two decades ago California promoted solar, wind, geothermal, biomass and small hydroelectric sources like no other state. An entire domestic renewable energy industry was initiated in California. Wind power was probably Californias most famous renewable energy source and is now the fastest growing power source in the world. The current regulatory system still encourages large, central station powerplants fueled by natural gas. We now have the diverse tools and technologies necessary to force a revolution in energy production that mimics, to a large extent, the evolution in scale and efficiency found in the telecommunications and computer industries. These newer technologies include solar photovoltaics, fuel cells and wind turbines which are the equivalent to wireless cell phones and portable laptops that replaced traditional grid-connected computers.

RENEWABLE ENERGY SOURCES

Fossil fuels such as petroleum, natural gas, coal, and nuclear fuels such as uranium must be discovered and extracted before they can be of benefit to mankind. This is a costly and time-consuming job. Also, the supply of these fuels is limited. There are other energy resources that are renewable. Their supply is virtually limitless or they can be replaced as needed.

2003 by The Fairmont Press.

Energy Demand, Sources and Rate Trends

Solar energy (energy produced from the sun) is available every day at sunrise. Rain replenishes the rivers and lakes that provide hydroelectric power (energy created by moving water). Winds that whip through mountain passes can be used to turn wind turbines for generating electricity on a regular basis. Geothermal heat is heat created from molten earth deep below the surface. It can be captured and used to create steam to power turbines. Even wood products and garbage can be used as sources of fuel, as long as our forests and municipal wastes are managed properly. Although renewable energy resources are available which can last indefinitely, several problems prevent their wider use as reliable energy sources. One is cost, collecting sunlight and converting it to electricity requires expensive solar collectors. Additional technological developments are needed in several areas if renewable resources are to play a key role in energy. The reliability of wind turbines needs to be increased and their price lowered. As the cost of fossil fuels continues to rise, the prospects of renewable energy resources will grow. New technology will reduce the price of energy from some renewable resources and make others easier to use.

HYDROELECTRIC POWER
Of all the renewable energy resources used in the United States since the 1930s, hydroelectric power (electricity generated by waterdriven turbines) is the most important. During the 1930s, great dams were built across major waterways throughout the country, and nearly 40% of all U.S. electricity was generated by hydroelectric facilities. Today, water power accounts for only about 10% of Americas total electric energy, although it is about 95% of all electricity generated from renewable resources. The growth of hydroelectric power has slowed during the last few decades since many of the nations most promising sites for dams are occupied. The Columbia River system has over 190 dams. The electricity generated by these and other dams costs approximately half as much as that generated from more traditional sources. Environmental problems at each dam site include changes in reservoir water levels which affect plants and wildlife. Dams can lower down-

2003 by The Fairmont Press.

New Technologies for Energy Efficiency

stream water temperatures when the cold water drawn from the bottom of the dams passes through the generators and is released downstream. The cold temperature can affect the life cycle of plants, insects, fish, birds and mammals. If the licensing procedures for new dams could be eased, hydroelectric power could become an even larger source of renewable energy. Microhydro systems are also in use. Kitty Couch in the Black Mountains near Burnsville, North Carolina, has a microhydro system in a small, seasonal stream of 60-130 gallons per minute. The system generates about 5kilowatt hours (kWh) per day in the dry season and about 10-kWh in the wet season. Figure 1-1 shows the basic elements for this type of system.

SOLAR POWER
After hydroelectric power, solar power is the most promising form of renewable energy in the United States today. Three areas of solar are prominent:

Figure 1-1. Grid-intertied Hydro Generator System

2003 by The Fairmont Press.

Energy Demand, Sources and Rate Trends

1. 2. 3.

The heating and cooling of homes with solar energy. The use of focused sunlight to create steam for generating electricity. The direct conversion, using solar cells, of light into electric power.

Almost 25% of the U.S. energy is currently expended in the heating and cooling of buildings. One way using solar energy to heat a home is to use large windows facing south to capture the rays of the sun. Peter Berney in Prescott, Arizona, built his house in a U-shape surrounding a 400square-foot greenhouse. The 16-inch poured adobe walls pass the heat at about an inch per hour into the house. Heat-absorbing walls can hold the heat for slow release into the home even after the sun goes down. Air ducts and fans circulate the heat to different rooms in the house. Solar heating systems use black metal or plastic panels to absorb the suns heat. Water circulates through the panels and transfers the heat into a building using pipes. Excess heat can be stored in the building as a tank of hot water. As heat is needed, a fan blows room air over the metal vanes attached to pipes through which solar-heated water is pumped from the storage tank. Solar heating systems are effective but most homes using them require backup heaters that run on natural gas or electricity to provide heat on cloudy days or unusually cold nights. The backup heater adds to the initial cost of the homes overall heating system, although that cost is offset by reduced fuel bills. One way to cool a house with solar energy is to use an electric heat pump. The pump works on a refrigeration cycle, cooling the air in a room by transferring heat from the room to the outside.

UNITS OF ENERGY AND POWER

There are many ways of measuring energy for the different forms of energy. One standard unit of energy is the same as the unit of work, the joule (abbreviated J), but a wide variety of other units are used too. Energy can also be measured in terms of quantities of fuel. Table 1-1 lists some common units and the conversion factors between them.

2003 by The Fairmont Press.

New Technologies for Energy Efficiency

Table 1-1. Energy Units 1 kilowatt-hour (kWh) = 3.6 megajoules (MJ) 1 calorie = 4.18 J 1 Therm = 105.5 MJ 1 British Thermal Unit (Btu) = 1055 J One horsepower (HP) = 746 W Heat energy content of 1 cubic meter (m3) of natural gas = 38 MJ 1 ton of oil = 12,000-kWh of electricity (assuming 100% conversion efficiency) A large modern wind turbine produces about 500-kW A large modern fossil fuel power station produces about 1-GW (1000MW) Power is usually measured in watts (abbreviated W), or in multiples of watts such as kilowatts or megawatts. One watt is equal to one joule per second. Watts are familiar as ratings of electrical appliances. The electrical power is equal to the product of the voltage and the current at any instant: Watts = Volts Amps In an alternating current (AC) circuit, the voltage and current are not always in phase with each other and the power is given by: Watts = Volts Amps Power Factor Other, non-electrical energy conversion processes may also be described in terms of power. Because of the close connection between energy and power, it is common to measure energy, and particularly electricity, in terms of power and time: Energy = Power Time Thus, a kilowatt-hour (kWh) is the energy of a 1-kW (1000W) device running for 1 hour (3600 seconds), and is equal to 3.6-MJ.

2003 by The Fairmont Press.

Energy Demand, Sources and Rate Trends

A battery uses stored chemical energy to provide its energy input to an electric circuit. A power station involves a longer series of conversions. If the input is a fuel, the first step is to burn it, using the heat to produce high pressure steam on hot gases. When the input is already in the form of a moving fluid such as wind or water, this stage is not needed. The steam or other moving fluid is used to drive rotating turbines, which in turn drive the electrical generator. The generators operate on the principle that a voltage is induced in a wire that moves in a magnetic field. Connecting the ends of the wire to an electric circuit allows a current to flow. The electrical energy can be transformed into heat, light or motion, depending upon what is connected to the circuit. The electricity becomes a convenient intermediary form of energy, used to allow energy released from one source to be converted to another different form some distance from the source. Another form of electrical energy is carried by electromagnetic radiation. This electromagnetic energy is the form in which, solar energy reaches the earth. Electromagnetic energy is radiated in some amount by every object. It travels as a wave and can carry energy through empty space. The length of the wave is the wavelength and determines its form. This includes x-rays, ultraviolet and infrared radiation, microwaves, radio waves and the small band of wavelengths that are known as visible light. Another basic form of energy is found in the central nuclei of atoms, and is called atomic or nuclear energy. The technology for releasing it was first developed for military purposes and then in a controlled version for the production of electricity. Nuclear power stations operate on the same principles as fossil fuel plants except that the heat from the fossil fuel is replaced by a heat from a controlled nuclear reactor.

CONVERSION AND EFFICIENCY

When energy is converted from one form to another, the useful output is never equal to the input. Some energy is always lost. The ratio of the useful output to the required input is called the efficiency of the process. Some of the inefficiencies can be reduced by good design, but

2003 by The Fairmont Press.

New Technologies for Energy Efficiency

others are inherent in the nature of the conversion. Many systems involve the conversion of heat into mechanical or electrical energy. Heat is the kinetic energy of randomly-moving molecules, a chaotic form of energy. No machine can convert this chaos completely into the ordered state associated with mechanical or electrical energy. This is the essence of the Second Law of Thermodynamics: that there is fundamentally a limit to the efficiency of any heat engine. Some energy must always be rejected as low-temperature heat. Energy sources can be graded in quality. High-grade sources provide the most organized forms of energy and low-grade sources are the least organized. The higher grades include the kinetic energy of moving matter, gravitational potential energy and electrical energy. These can be converted with small losses. Larger losses occur when the lower forms are converted. Chemical energy occupies an intermediate position, then high-temperature heat and finally low-temperature heat. About three times more heat is released at the power station than is delivered to the consumer. This wasted heat can be used for some other purpose. This is the principle of combined heat and power, (cogeneration) in which fuel is burned to generate electricity and the remaining output, which is in the form of heat, is used to provide low-grade heating. The overall efficiency of cogeneration plants can be 80% or more. The waste heat from many high-temperature processes can be channeled to lower temperature use. This allows the energy of the original source to flow or cascade through two or more uses, thus providing more efficient use of fuel.

GENERATOR SYNCHRONIZING
The generators in modern power stations generate alternating current. The current increases and decreases sinusoidally a fixed number of times per second. This is 60 in the U.S. and 50 in Europe. The number of cycles per second, the frequency, is determined, in synchronous generators, by the speed of rotation of the generator, and is usually controlled within close limits. Many motors and appliances rely on a predictable frequency.

2003 by The Fairmont Press.

Energy Demand, Sources and Rate Trends

When many power stations are linked together by a high-voltage grid of power lines, it is necessary for all the generators to be synchronized, to operate at the same frequency, so that the peaks and troughs of current generated by each reinforce one another rather than canceling. If generators driven by renewable sources such as wind or hydro power are connected to the same electricity grid, they too must be synchronized to all the others. The frequency of their output must be effectively constant, regardless of fluctuations in the renewable source. This is a significant constraint on renewable sources, and can lead to lower efficiencies than could be obtained if the generators were allowed to vary in speed. In some renewable energy systems, such as wind turbines, asynchronous or induction generators are often used. The frequency of output of these generators is fixed by the frequency of the grid, but their rotation speed varies within a small percentage of the nominal speed, depending on the power output. The steam turbine used in most fossil-fueled power stations is a heat engine and its efficiency is limited by the Second Law of Thermodynamics. This equation shows how to calculate the maximum theoretical efficiency. It is a function of the temperature of the steam reaching the turbine and the lower temperature at which the departing steam is condensed. If we call these TU and TL respectively, then:
TU TL TU

Maximum Theoretical Efficiency =

Kelvin temperature must be used in this formula. Suppose that steam enters the turbines at 550C and is cooled to 27C. The Kelvin temperatures are TU = 823 K and TL = 300 K, so the maximum thermodynamic efficiency is 523/823 = 63.5%. In practice, older steam turbines achieve about 70% of this, or about 44.5% efficiency. Assuming that the efficiency of the boiler and generator is 90%, then the overall plant efficiency is 40%. Newer plants that use natural gas at very high temperatures in a gas turbine achieve a plant efficiency of close to 50%. The gas turbine is similar to an aircraft engine and uses some of its output gases to produce steam to run a conventional steam generator to produce electricity.

2003 by The Fairmont Press.

New Technologies for Energy Efficiency

FOCUSED SUN POWER

Focused sunlight has been used to generate power in the deserts of southern California. One installation uses 130 acres with 1,818 mirrors. A motor controls each mirror, rotating it so that it reflects the suns light to heat a tank of water. The reflected sunlight brings the water to a boil and the steam given off generates 10,000 kilowatts of electricity, enough to satisfy the needs of ten thousand people. The hot water can supply enough steam to operate the turbines without sunlight for up to four hours. Electricity can also be generated from the suns light using photovoltaic, or light-sensitive, cells. Direct solar systems can produce several kilowatts of power. In the Saudi Arabian desert, homes have been receiving power from a 350-kilowatt photovoltaic powerplant since 1982. In the United states, the first privately funded photovoltaic powerplant was built in 1983. It provides 1,000 kilowatts of power to the Southern California Edison Company. Another private company built a 16,500-kilowatt photovoltaic powerplant in northern California. The Sacramento Municipal Utility District completed a 100,000-kilowatt plant.

WIND POWER
At the end of the 19th Century, almost 7 million windmills were supplying mechanical energy to pump water and grind grain in the United States. Wind power was vital to farmers on frontier lands. Today, a new, more efficient type of wind machine is being used to help meet Americas energy needs. These giant machines are much different from the small windmills that still pump water on some farms. Most modern wind turbines have only two or three blades, like those on an airplane propeller. Some are large enough to span a football field and can generate 5,000 kilowatts. There are home, marine and industrial wind turbine generating systems of several kilowatt capacity that can provide 40-kWh/month at 12 mph (5.4 m/s). In some parts of the country windpowered generators can compete with oil-fired powerplants.

2003 by The Fairmont Press.

Energy Demand, Sources and Rate Trends

The National Aeronautics and Space Administration (NASA) has developed some of the worlds most advanced wind turbines. The NASA MOD-2 design uses a 200-foot-high (60 m) tower with rotor blades some 150 feet (45-m) long. The height of the tower allows the unit to take advantage of strong winds, while the long blades are used to generate more power. A MOD-2 unit can produce 2,500 kilowatts of power in a 28-mile-an-hour (45-km-per-hour) wind. Winds of less than 14 miles (22.5-km) an hour are too light to generate power, and winds of more than 45 miles (72-km) an hour result in automatic shutdown of the unit to prevent damage. Another design is the Darrieus windmill which uses thin blades connected at top and bottom to a vertical shaft. It resembles an egg beater and has several advantages over tower-supported wind generators. The Darrieus unit allows the heavy generator component to be placed on the ground rather than installed on a tower. The vertical blades of the Darrieus unit can accommodate winds from any direction, while propeller-blade turbines must be adjusted so that their blades face into the wind. Ecological concerns may slow wind generator construction in some parts of the country. These giant moving blades can effect bird migratory patterns.

GEOTHERMAL POWER
Besides wind and water, there are other renewable energy sources. About 90 miles (145-km) north of San Francisco, CA, a series of hot springs (called The Geysers), has been used to produce steam to run turbines. This geothermal power station can generate almost 2 million kilowatts. The steam produced by The Geysers is known as dry steam because of its low moisture content. Dry steam is rare in the U.S., accounting for less than 1% of all geothermal resources. About half the states have hydrothermal, or underground hot water, resources. Some of these resources have been used to generate electricity, but many are still untapped. Two methods of tapping geothermal power are used. When the geothermal hot-water temperatures are above 210C (410F), the direct flash method is used. When this superheated water is brought to the surface, its

2003 by The Fairmont Press.

New Technologies for Energy Efficiency

pressure drops and it starts to boil. The steam produced by the boiling water has been used to drive a turbine at a plant in Brawley, California. This plant generates more than 10,000 kilowatts of electricity. Geothermal sources could generate almost 25 million kilowatts in the U.S. When the geothermal water temperature is below 210C or the underground pressure is too low for the water to boil once it is brought to the surface, a more complex approach is used. The geothermal hot water is used to boil a second liquid with a much lower boiling temperature than water. The second liquid then vaporizes and drives a turbine to produce electrical power.

WOOD FUEL
Another form of renewable energy is wood and burnable refuse. The United States uses about 130 million tons of wood annually. These 130 million tons represent only a few percent of Americas energy needs. Many homeowners burn wood in fireplaces and stoves to lower their heating bills, and some factories use wood scrap that was previously discarded to fire their furnaces. New technology is helping to increase the efficiency of using wood as a fuel. Chipping machines allow the entire tree to be used. Pollutioncontrol devices reduce the spread of toxic materials in wood smoke.

BIOMASS
One biomass conversion unit transforms wood chips into a methane rich gas that can be used in place of natural gas. Another biomass plant in Maine burns peat to produce power. In addition to trees, some smaller plants, like the creosote bush, which grow in poor soil under dry conditions, can be used as sources of biomass, which are biological materials that can be used as fuel. These renewable sources of energy can be grown on otherwise unproductive land. Another type of biomass used as fuel comes from distilleries using corn, sorghum, sugar beets and other organic products. It is ethyl alcohol,

2003 by The Fairmont Press.

Energy Demand, Sources and Rate Trends

or ethanol which can be mixed in a ratio of 1 to 10 with gasoline to produce gasohol. The mash, or debris, left behind contains all the original protein and is used as a livestock feed supplement. A bushel of corn provides two and a half gallons of alcohol plus by-products that almost double the corns value. Ethanol is a renewable source of energy, but critics question turning food-producing land into energy production.

WASTES
In addition to biomass, many communities around the country have used municipal wastes to produce energy. A plant in Connecticut burns garbage to produce electric power. Americans produce over 200 million tons of refuse each year. In the United States since 1960, the amount of solid wastes has grown by 80% and is expected to increase another 20% in the next decade. Some of this waste is industrial. Every year, about 2 billion disposable pens are thrown away, along with 2 billion disposable razors and 16 billion disposable diapers. The major type of solid waste is paper and related materials, followed by glass, metals, food, plastics and yard refuse. All this waste is quickly filling the nations landfills to capacity and disposal of all that refuse is an energy-consuming process. Methods such as recycling, or turning used materials into new products, helps to conserve natural resources. Recycling paper eases the pressure on landfills and slows water pollution caused by paper mills while saving trees. Recyling is costly but an alternative to recycling is to generate energy. When garbage is burned at 2,000F (1,093C) while air is forced into the mixture, most of the harmful by-products of incineration are eliminated. The ashes make up only about 20% of the original volume of the garbage. The iron residues are removed with magnets and the remaining ash can be used on snow-and ice-covered roads instead of salt to limit environmental damage. Another form of recycling is used by National Energy Associates in Imperial Valley, California. They burn dried cow manure, converting 900 tons a day into 15,000 kilowatts of power.

2003 by The Fairmont Press.

New Technologies for Energy Efficiency

Another powerplant burns wheat straw and other crop wastes. This plant, was constructed by John Hancock Mutual Life and Niagara Mohawk Power, who were partners in the venture. Another source of renewable energy is currently being used in Europe. It is called tidal energy, and it involves the natural rhythm of oceanic tides. A tidal powerplant built in 1966 on the Rance River in Brittany, France, uses the movement of ocean tides to run 24 turbines at the rivers mouth. The plant generates 240,000 kilowatts of power at peak water flow, but it can operate only about 1/4th of the time because of the changing currents. The percentage of energy generated from wood, biomass, manure, refuse, and the oceans tides remains small, but as technology improves to squeeze more energy from these forms of fuel, their use is expected to grow.

DEREGULATION
So far, 24 states and the District of Columbia have instituted electricity deregulation. In almost every case the process has had some bumps along the way, largely because deregulation is being attempted during a period of short power supplies and escalating demand. Some states are hurting less than others because utilities, regulators, and lawmakers have done a better job adjusting to problems. A critical issue is ensuring adequate supply, when prices began to rise after Illinois deregulated in 1997, the state began building new powerplants. To speed up the process, its largest utility, Commonwealth Edison Company, promoted a list of sites in rural or industrial areas that wanted the jobs or property taxes that the new plants would bring. The Illinois Corporate Commission, which regulates utilities, estimates that new plants are now producing enough new electricity to supply almost 4 million homes. In California, utilities and power producers had to buy and sell electricity on a last-minute daily basis through a pooled entity. Pennsylvania allowed its utilities to buy power from whomever they wanted. In Pittsburgh the Duquesne Light Company signed long-term power contracts that cut consumers power bills by 20%.

2003 by The Fairmont Press.

Energy Demand, Sources and Rate Trends

New York, like California, had utilities sell many of their powerplants as part of deregulation. But, unlike California, utilities were allowed to pass rising fuel costs to consumers. California has used the British deregulation model which also ran into problems early, but it is now working much better. Prices jumped in the early 1990s and wholesale price caps were implemented. Later, windfall-profit taxes were placed on power suppliers. Utilities were forced to cut their employees by half. The country power pool which is similar to Californias Power Exchange was revamped to encourage longer-term contrasts. Retail power prices have declined 30% in England over the past decade. In the U.S., over the last decade, power surpluses resulted from the overbuilding of large centralized nuclear and coal powerplants in the 1970s. This, in turn, depressed electricity prices. Prices are now escalating due to a supply shortage. For the first time in several decades, electricity consumption is going up, not down. In Silicon Valley, electricity consumption has been growing at 5% annually over the past few years. While electricity represented only 25% of our total energy needs 25 years ago, it will represent half of our energy consumption in a few more decades. One study by the Lawrence Berkeley National Laboratory in California focused on electronic products that continue to use power even when turned off. The study determined that the nation wastes over 70terawatt hours (tWh) per year on such equipment. This is about 2% of the total power production. About 75% of this waste occurs in commercial offices, 12% in home offices and the rest in industrial sites. Desktop computers and monitors are the biggest offenders and waste over 14-tWh each. Copiers waste another 7-tWh and laser printers are close behind with 6-tWh. Fax machines and inkjet printers waste another 3-tWh each.

NATURAL GAS
Almost all new powerplants burn natural gas. Natural gas is formed in the same deposits as oil and by the same natural forces. Natural gas did not become popular until after World War II when economical tech-

2003 by The Fairmont Press.

New Technologies for Energy Efficiency

niques for transporting it were discovered. From the mid-1940s to the mid-1960s, U.S. consumption of natural gas nearly quadrupled as it proved to be a cheap, clean-burning fuel. During this 20 year period, the price of natural gas was regulated by the Federal Power Commission (FPC), which made it a good buy relative to other fuels. Since it is the cleanest of fossil fuels, natural gas has become the fuel of choice for generating electricity. Since 95% of all newly proposed powerplants, some 250,000 megawatts run on natural gas, supplies have dwindled. High natural gas prices may last for at least several more years because of supply shortages. Millions of consumers have gotten reminders of how free market forces work, in the form of unusually large natural gas bills in their mailboxes. U.S. Department of Energy estimates showed that heating an average home in the Midwest would cost 54% than the year before. In the Washington, DC area, prices have more than doubled. In the past few years natural gas prices have been rising. A few years ago natural gas prices hit bottom and these low prices led to a cutback in the exploration and drilling of new gas supplies. Since it takes time for new supplies to emerge, only now are gas supplies beginning to increase. In 1999, about 400 natural gas rigs were in operation. That number has doubled. Homes with large gas bills have cut back on consumption. High prices encourage supply while limiting demand, and eventually bring prices down. There was not a natural-gas supply shortage. When prices spiked, gas companies did not have to cut back on service to consumers. Contrast this to the electricity situation in California, with price controls and blackouts. Natural gas consumers face the prospect of high prices in the future, due to government policies that push up demand while keeping off limits vast supplies of natural gas that could meet this demand.

NATURAL GAS DEMAND

Government has encouraged the use of natural gas for two reasons. Almost all of the natural gas the United States consumes is produced domestically. Only about 15% is imported, and most of that comes from

2003 by The Fairmont Press.

Energy Demand, Sources and Rate Trends

Canada. This situation is unlikely to change. Unlike oil, natural gas cannot be transported easily over the ocean since it must be liquefied first. Domestic supply and supplies from nearby countries is tapped from underground reservoirs piped to users along a vast array network of underground pipelines. Encouraging the use of natural gas helps cut the dependence on oil, almost two-thirds of which is imported. Another reason natural gas is popular is that, compared with other major sources of energy, natural gas is far less harmful to the environment. It produces about half the nitrogen oxides of oil, per unit of electricity generated, for example. It emits almost no sulfur dioxide or soot. Advanced natural-gas cars cut carbon monoxide emissions by 80% compared with conventional, gasoline-powered vehicles. Natural gas produces about half as much carbon dioxide for each unit of energy as coal, and almost a third less than oil. Most projections envision a dramatic rise in natural gas consumption which will require substantial increases in natural gas development and production to meet the growing market demand. Since natural gas is cheaper and more efficient in many cases than alternative fuels, the countrys use of natural gas has been climbing sharply. Over the past decade, gas consumption has increased by 12%. The country uses over 20 trillion cubic feet (tcf) of natural gas per year. This is expected to climb to at least 30 tcf over the next decade. Over 95% of all new electricity plants are powered by natural gas, and about 70% of new homes are heated by it. Cities are using natural-gas-powered bus and government-owned car fleets.

LIMITING THE SUPPLY

The problem is that while the government has been pushing natural gas demand, it has also been keeping vast stocks of it locked up underground because of restrictions on what can be done on the land and sea above. In a 1999 report, the National Petroleum Council, which advises the Energy Department, stated that over 200 trillion cubic feet of natural gas are off limits to drillers due to regulations in drilling. In the Rocky Mountain region, over 130 tcf are off limits in an area which includes

2003 by The Fairmont Press.

New Technologies for Energy Efficiency

most of Colorado, Wyoming and Utah, and parts of Arizona, New Mexico, Kansas, Nebraska, South Dakota and Montana. In addition, over 50 tcf of natural gas are located off shore on the East and West Coasts, none of which can be drilled because of bans in those areas. Over 20 tcf are blocked because of bans on drilling in the Gulf of Mexico. In the Rocky Mountain region, there are a wide range of wildlife restrictions during various times of the year to protect such animals as prairie dogs, raptors, burrowing owls, sage grouse, and big game. These actions taken together effectively prevent access to natural resources such as natural gas. More supplies were taken away through national monument declarations and U.S. Forest Service plans to bar road building in millions of acres of forest. That act alone put 10 trillion cubic feet of natural gas out of reach. Drilling can be disruptive, but technological advances over the past decades have sharply reduced the harm to the surrounding environment. According to the Department of Energy these advances include horizontal and directional drilling that let drillers mount a rig in one area and retrieve supplies miles away. There are also better detection methods using satellites, remote sensing, and super computers that reduce disruption of the land and produce fewer dry holes resulting in less waste. The Energy Department concluded that resources under arctic regions, coastal and deep offshore waters, wetlands and wildlife habitats, public lands, and even cities and airports can be extracted without disrupting surface features above them. Canada has made use of these technological advances. An offshore gas rig off the coast of Nova Scotia provides gas to New England. It is just north of the American coast where drilling is forbidden. Canadas natural resources department decides new parkland boundaries only after an assessment of minerals underneath is conducted. A few years ago Canada passed the Oceans Act, which provided integrated coastal zone management. Canadian officials assess the area and come up with a consensus on how industries and other groups with interests in the region can coexist. In the U.S. a similar approach is needed, one that tries to balance the task of supplying the nations growing energy needs with preserving and protecting the environment.

2003 by The Fairmont Press.

Energy Demand, Sources and Rate Trends

As older coal, oil and natural gas plants run more often in supply shortage emergencies, pollution goes up. But Internet era companies need the super-reliability that the older power grid-connected powerplants cannot always supply. Many of these companies are installing diesel generators on site, a trend that threatens to increase air pollution, testing the belief that e-commerce is an environmentally friendly development. The primary emphasis of power growth has been in natural gas plants, by 2001 the California Energy Commission approved 4,000 megawatts with another 24,000 megawatts waiting in pending applications.

POWERPLANT PROBLEMS
Most of todays electricity is generated in steam-turbine powerplants that use coal, oil, natural gas or nuclear reactors. The steam is heated at high pressures to more than 1,000F. It passes through a turbine where it is cooled to less than 100F. One turbine-generator can supply the needs of about 500,000 homes. There are severe problems to the successful siting of gas-fired powerplants. Poor air quality often exists in regions where new supplies are most needed. New natural gas powerplants are relatively clean, but they still emit pollutants. In order to site these plants, the developers need to reduce pollution elsewhere. This is often done typically in excess of what is generated at the new powerplant by buying so-called offsets. In these transactions, the powerplant developer pays other air pollution sources to reduce their emissions. These offsets are becoming quite scarce and their costs have jumped due to the short supply. Powerplants use a lot of water for cooling, and there is opposition from other water users to diverting this resource to powerplants. Some gas-fired plants can use dry cooling, but that raises the price. The cost of electricity from gas plants has already more than doubled recently because of fuel price increases and a dry cooling system add another layer of costs. The biggest barrier to adding natural gas powerplants may be the

2003 by The Fairmont Press.

New Technologies for Energy Efficiency

availability of the fuel itself. The natural gas may be in the ground, but it takes time and money to get it out and to the plants. Since natural gas is also a primary heating fuel, supplies can be expected to be short. The constraints on shipping additional natural gas supplies into California are matched by a lack of transmission access to import additional electricity from powerplants burning coal or splitting atoms located in other states. The uncertainties associated with an industry that is partly regulated and partly competitive makes it difficult to invest in needed infrastructure, particularly transmission facilities. Californias deregulation plan did not create a mechanism for private, non-utility investment in power transmission. Utility owners of the transmission system have no incentive to invest in transmission. The transmission system erected in an era of vertical integration and was never meant to handle the loads of an unbundled electricity sector, where power producers supply bulk electricity to the highest bidders. Transmission will require immense investment in the coming years in order to maintain system-wide reliability. But, investments in transmission facilities have gradually declined over the last 20 years. Innovation is needed at the distribution level of utility service. Cutting edge distributed generation sources could be integrated into grids to address the challenges posed by the current electricity infrastructure. Reliability is a major concern for Internet-related businesses. A power outage on one day is estimated to cost $100 million in lost e-business. Oracle puts the price of a power disruption at millions of dollars per hour. Hewlett Packard estimates that a 20-minute outage at a circuit fabrication plant can result in a $30 million debt due to the loss of a days production. As the power grid becomes less reliable, the case for innovative supply solutions becomes stronger. These high-availability power supplies include non-polluting fuel cells. More kilowatts may not be enough, there is also a need to have reliable kilowatts, to meet high tech needs.

FUEL CELLS
Several companies, including Pennsylvania Power & Light and Toshiba, announced major investments in fuel cell technology after the price spikes in electricity. Almost $17 billion of the $20 billion invested

2003 by The Fairmont Press.

Energy Demand, Sources and Rate Trends

in alternative energy technologies has gone to fuel cell companies. Some fuel cell stocks have jumped as much as 1,000 percent. Fuel cells rely upon an electrochemical process to convert chemical energy into electricity and hot water. They can be used to generate power during blackouts. Fuel cells can run on a variety of fuels that include natural gas and hydrogen. A 1-megawatt system is used to provide power for a post office in Anchorage, Alaska. The Los Angles Department of Water and Power has installed a fuel cell system. It believes these clean distributed generation sources are key solutions to Californias power supply problem. Diesel generators are the most common form of distributed generation in operation. These can help fill in supply gaps but air quality is impacted since diesel is viewed as a dirty technology, particularly when there are other alternatives that can deliver power reliability with less impact to the environment. Leading companies such as Cisco Systems provide computer networks that are dependent upon ultra-reliable electricity. Cisco has installed 12-megawatts of back-up diesel generators. Diesel generators are 10 times more polluting than the vintage natural gas plants built during the Korean War that, in turn, are 10 times more polluting than the large gas plants currently being built. Fuel cells can generate clean electricity from a variety of fuels including hydrogen and could supply as much as 20% of the nations commercial and industrial power needs within a decade. Solar photovoltaic technologies currently dominate clean energy distributed generation purchases by businesses and other consumers.

SOLAR PHOTOVOLTAICS POWER

PowerLight Corporation is a solar photovoltaics manufacturer that views power price spikes in California as a business opportunity. Installation of 1-megawatt of solar power on large commercial buildings is possible. The price of photovoltaic power is high but within in the broad range of 10 to 35 cents per kilowatt which is about the same or lower than being paid for dirty coal power during supply emergencies. Solar photovoltaic panels can be installed in a matter of days which

2003 by The Fairmont Press.

New Technologies for Energy Efficiency

is far quicker than the years it takes to site and build most large fossil fuel facilities. Germany and Japan install roughly 70 megawatts of photovoltaic per year. PowerLight installed a 100-kilowatt system on the top of the Anaheim Convention Center in 2000. PowerLight estimates that California could generate 16,000 megawatts of electricity from the sun if every commercial and industrial roof were covered with photovoltaic tiles. This amount would represent about a third of the states entire demand for electricity. In California solar photovoltaics are being spearheaded by local governments. The National Renewable Energy Laboratory has studied the potential benefits of installing solar photovoltaic in our nations urban centers. Seven major outages, including one impacting San Francisco, were analyzed from the aspect of the quality of solar energy during the exact times of the power loss. In all but one of the outages, the conditions for optimal solar electricity generation were about 90%. This is because the sun is strongest on days that lead to the heat waves that stress our electricity delivery system. We can use the same sun that helped create the crisis to solve the power supply problem. A study by the U.S. Department of Energy showed that solar photovoltaic panels on the roofs of Californias city and county buildings could generate 200 megawatts of clean electricity. School roofs covered with solar photovoltaics could add another 1,500 megawatts to the states peak power supply. Proposals for distributed power sources have encountered extended delays, often due to local governments. Many local government officials are not up to speed when it comes to these micro-powerplants. In the early 1980s, when fuel cells first arrived, utilities were installing them and there were few problems regarding the codes and regulations that applied at the customer site. Today, typically a third party installs fuel cells at customer sites and local government approvals are rocky. Local officials need to understand the technology better. To most local building departments, a fuel cell is just a big box, and they are not sure what to do when it comes to issuing a permit for construction or operation. Like solar photovoltaic panels, fuel cells do not release any harmful air pollutants because nothing is burned. But, they do produce high-temperature steam, which can reach 1,000C although

2003 by The Fairmont Press.

Energy Demand, Sources and Rate Trends

the potential for problems is considered minimal. Many of the local codes do not address these technologies at all. Some argue that they are an appliance but others argue that there are more serious impacts on health and safety. RealEnergy supplies solar photovoltaics and is mounting an acre of solar panels on the roofs of the City Center in Los Angeles, which is owned by Arden Realty. RealEnergy is working with major owners of commercial property taking a long-term view on electricity reliability and environmental impact. Arden Realtys goals are to install equipment that increases the reliability of power systems for tenants and reduces the environmental impacts of dirty electrical generation. There will be more than 300 kilowatts of solar photovoltaics on the City Center which makes it the largest private installation of this technology in the Western Hemisphere. Solar photovoltaic installation involves high up-front expenditures, but RealEnergy believes that the costs are reasonable when spread out over the 20 year life of the equipment. After the installation, there is no fuel and little maintenance. The California Energy Commission included buy-down funds in the states deregulation law which can cover almost half of a new solar photovoltaic installation. This has helped to boost demand for grid-connected solar systems by a factor of ten. In California, electricity marketers and generators were accused of profiteering and market manipulation. A trading company produces little or no power itself and owns relatively little in the way of hard assets. Instead it has pioneered the financialization of energy. Its profit stream comes from a flow of often low-margin trades, in which it buys and sells a variety of contracts. Beyond energy, these new market models include data storage, steel and even advertising space. Power deregulation has lost momentum since it is hard to argue that it has resulted in lower bills. In overseas markets, big utilities in the south of Europe, want to use the California experience to slow down power liberalization according to the European Federation of Energy Traders. The power brokers believe that the contention in California has buried the reasons for deregulation. The older utilities were expensive to operate and provided often appalling service to their customers. In the

2003 by The Fairmont Press.

New Technologies for Energy Efficiency

regulated model, utilities could pass on costs to customers and they lacked incentives to utilize capacity more efficiently or to offer innovative service. Oregon, Arkansas, and Nevada are considering a slowdown in their deregulation plans, while northeastern states have put in place wholesale price caps. A large trading company may have over 1,000 traders making markets in gas, electricity, metals, bandwidth, and other products. They will post prices for an array of energy contracts. Utilities caught short on supply can buy more and generators with excess capacity can find markets willing to pay. In California, business leaders pushed deregulation because they were paying 50% more for power than their competitors in other parts of the country. The utilities were operating high-cost plants with little access to capital to upgrade. The upside of deregulation has been the huge amount of new construction. It is the direct result of the industry having new access to capital markets. One problem now is that the nation is in a confused state between regulation and deregulation. The freezing of retail prices for consumers and businesses in California while deregulating the wholesale market where utilities shop left the power companies unable to cover their rising energy costs and pushed them to financial collapse. A professor at the Yale School of Management, compares this to the blunder that regulators made in the 1970s with the savings and loan industry. The S&Ls were restricted to investing in long-term assets, like mortgages, while paying volatile market rates on shorter-term deposits.

ENERGY PRICING
For a long time, energy production costs were low and these production costs were reflected in the low energy prices charged to consumers, who had little or no incentive to limit their energy consumption. Today, increased prices to the consumer are an important incentive to encouraging conservation. Energy has traditionally been priced to reflect the average cost of old, cheaper energy supplies or plants and new, expensive supplies or

2003 by The Fairmont Press.

Energy Demand, Sources and Rate Trends

plants. While renewable energies are free, the equipment needed to capture conventional energy resources. But, renewable energies are often competitive when the life-cycle costs are computed and compared. This is the total cost of equipment plus fuel over a systems lifetime.

RATE STRUCTURES
The prices charged to consumers for electricity and natural gas reflect a good deal more than the cost of energy. These rates, which are generally established by the public utilities commission in each state, traditionally have been based on various factors in addition to fuel costs. These factors include the following: 1. 2. Costs of building energy production and distribution facilities. The allocation of costs among different types of consumers based upon consumption amounts and patterns. An allowance for a reasonable rate of return to the utility. The recognition of rapid fuel price increases, primarily through fuel adjustment charges.

3. 4.

In the past, rate structures have generally been designed to encourage consumption rather than conservation. In the future, energy consumption up to a certain average level could be charged at current or slightly higher rates while any energy use in excess of this level would be charged at a higher rate. Under this plan consumers would not be penalized for moderate energy use but would pay more for increased or excessive use.

Flat Rates
When you buy oil or gasoline, you generally pay a fixed price per gallon. This neither encourages nor discourages conservation as long the price remains constant. Residential consumers of less than 500- to 600kWh of electricity per month often pay similar flat rates. These rates

2003 by The Fairmont Press.

New Technologies for Energy Efficiency

usually reflect the average cost of electricity. A flat rate also remains constant throughout the day.

Declining Rates
Gas and electricity have traditionally been sold at declining rates, under which each therm or kWh is cheaper than the last, in order to encourage consumption. This is still the practice in many areas. Declining rates are constant throughout the day. Since it is difficult in practice to charge a little less for each successive kWh consumed, declining block rates are normally used. For very large consumers, electricity can be extremely cheap. Typically, for the first 800-kWh consumed, the rate would be the highest per kWh, for the next 4,200 kWh the rate might be 30% less and for anything above 5,000 kWh another 30-40% less. The average cost of electricity for 10,000-kWh of consumption would be less than half per kWh compared to the initial block.

Inverted Rates
In inverted rates, each kWh consumed is more expensive than the previous one. This type of rate structure encourages efforts to limit consumption. An inverted rate remains constant throughout the day. In practice, increasing block rates are more likely to be used. The first block of energy is relatively cheap, while each increasing block gets more expensive. The first 800-kWh would be at the lowest rate, the next 400-kWh would cost 30% more per kWh and anything above 1,200-kWh could cost twice the initial rate. This is known as an inverted block rate structure. Life line rates could be used in which the cost of an initial block of energy is low, with the cost increasing for increased consumption above the initial block. The initial block might be 400-kWh. Above that, electricity costs would double or triple per kWh.

Demand Charges
Each consumer requires a certain transmission and powerplant capacity to supply energy at their rate of consumption. The gas or electric utility must invest money to build this capacity as well as to purchase the fuel to meet that need. Some consumers have an almost constant need for energy while others have a high periodic or occasional consumption. In order to meet the customers peak demand, especially if it is coincident

2003 by The Fairmont Press.

Energy Demand, Sources and Rate Trends

in time with the utilitys daily peak, the utility may impose an added charge on consumers to pay for the extra capacity. This also acts as an incentive to limit demand peaks. In a large building with a single meter, the demand charge is typically 1/3 of the total bill. This provides an incentive to reduce peak demand through load management. The demand charge is usually a constant dollar figure charged for each kilowatt of a peak demand and could be a few dollars per kilowatt. This charge may increase as peak demand increases.

Time-of-use Rates (TOURS)

This type of rate includes a variable demand charge or energy price that changes with the time of day. Just as long-distance telephone charges vary during the day, time-of-use-rates reflect the changes in hourly energy demand. Such a rate provides an incentive to shift energy consumption to those times of the day when demand is lower and energy is less expensive.

Interruptible Rates
An extreme application of TOURS is a rate that allows the utility to cut off part or all of the customers demand when the utility chooses. The utility is allowed to do this for limited number of times per month and for a limited duration. In return, the consumer receives a major discount for what is a lower-than-normal standard of service. This allows the utility to avoid the need to construct additional capacity to meet peak demand. Industrys response to the need to reduce energy use falls into three stages. During the 1970s, a crisis atmosphere was apparent. Plants emphasized turning down and turning off. In the 1980s, technological advancements led to the replacement of obsolete equipment and the installation of microprocessor-based devices. In the 1990s, energy and environmental issues merged together, and energy conservation efforts are being refined into management processes. A common misconception is to consider energy reduction simply as a energy conservation program. Energy is conserved by turning off equipment and shutting down processes. But, these measures have a negative impact on plant production. Energy needs must be managed to produce the final product or service at the minimum consumption.

2003 by The Fairmont Press.

New Technologies for Energy Efficiency

The goals of a successful energy management process include maximizing producer efficiency while minimizing consumer energy use. You also want to maintain a high energy load factor and use energy in the most economical way. The plant utilities must always be adequate to meet production/ process demands. If the output of the plant is threatened because energy supplies are inadequate, accommodations must be made so that production/process targets are met until a new energy supply or source is developed.

ENERGY MANAGEMENT PROGRAMS

Energy management programs provide a challenge to create an energy awareness and provide tools for reducing energy consumption to the low levels achieved during the emergency situation. A structured approach to energy management focuses on the following guidelines. 1. Total management commitment including the support of the company president as the first step. Employee cooperation and input is vital. Energy surveys are critical but are often given too little time and effort. Analysis of survey results, often too little time is devoted to analyzing where and why energy is used. Conservation goals are absolutely necessary. Without goals, there is nothing to strive for and no method for measuring performance. Reporting and communication is vital to energy management. Implement changes. Activities should be included whether it be disconnecting excess light fixtures or adding computer-based enthalpy controls on air washers to make use of outside air.

2. 3.

4.

5.

6. 7.

2003 by The Fairmont Press.

Energy Demand, Sources and Rate Trends

8.

Provide the necessary equipment. This could be sensors and computers to log temperature and kilowatt demand with simple data logging programs. Monitor results. Problem situations may return to their original state unless they are monitored continuously. Continuous monitoring should be maintained.

9.

ENERGY COORDINATORS
The success of the energy management process depends on the response of plant personnel. One way to guide the effort is to appoint plant energy coordinators. Coordinators should have the following responsibilities: Stimulating interest in energy projects, Providing operators, foremen, and resource people with the tools they need for energy management, and Making energy management an integral part of every department.

A coordinator should be a leader and understand general engineering and plant operations. They should be trained in energy management. Seminars or other educational classes can be used. The functions of a coordinator include: Inform plant management of any problems in energy use reduction and suggest ways to solve them, Ensure that cost reduction measures are on schedule, Establish priorities, set completion dates, and obtaining adequate staffing, Develop new energy reduction projects, Determine trends in energy usage and efficiency, Develop checklists to improve efficiency and operations techniques, and Develop energy standards.

2003 by The Fairmont Press.

New Technologies for Energy Efficiency

The energy management program should be outlined so all personnel understand the objectives and their role in them. The objective might be to ensure continued energy availability at the lowest possible unit cost. Energy should be available in sufficient quantity to support production/processing. If energy sources have historically been inadequate, alternatives should be investigated. Efforts to reduce Btus used per unit made should be directed at controlling cost per Btu by selecting from among available energy sources. Capital and operating expenditures and human resource requirements should be managed to yield the best return on assets. Disseminating information about the energy management program should include circulating energy use and cost information, displaying posters on bulletin boards and conducting seminars. A critical part of controlling energy use is to develop and apply accurate energy standards. Standards may be variable, those associated with production, fixed, that referred to as services energy. Energy use is dynamic and efforts to improve standards should be ongoing so that changes in product or service volume and mix, changes in the efficiency of utility equipment and seasonal fluctuations can be accurately modeled.

ENERGY AUDITS
Energy auditing is another part of controlling energy use. An audit can point out when equipment is operating unnecessarily or wastefully. It helps to develop operating procedures for reducing energy waste and can quantify the cost of that waste. Auditing also allows priorities to be set and helps to identify problems that require new procedures to reduce costs. Auditing can determine energy consumption rates and costs for the equipment in each department. The energy coordinator should be able to provide specific cost data. Department level energy coordinators should be able to identify major energy users and consumption rates. They should also be able to develop procedures that reduce waste and identify problems. Waste reduction may require process or equipment modifications. Department energy coordinators can determine how long equip-

2003 by The Fairmont Press.

Energy Demand, Sources and Rate Trends

ment is in service without performing a useful task. This should be done frequently enough to obtain statistically valid data. Checklists and sampling procedures can assist in this procedure. The cost of energy wasted is the product of the length of time energy is wasted and the hourly or daily cost to operate the equipment. This is illustrated in Table 1-2 for some common system loads. Table 1-2. Typical System Loads Load Watts Average Average Hours/Day WH/Day Induction cooktop 1,600 1 1,600 Well pump 250 6 1,500 Washing machine 800 1 800 Lights 200 4 800 Convection oven 1,500 0.5 750 Band saw 1,450 0.29 414.3 Vacuum cleaner 1,000 0.5 500 10 24.00 240 H2O conditioner Toaster, four-slice 1,800 .1 180 Clock 4 24 96 TV 80 1 80 Computer monitor 100 .5 50 Dishwasher 1,400 .1 140 Fan 600 1 600 Iron 1,200 .1 120 VCR 30 1.0 30 Lathe 900 0.03 30.0 Computer 55 0.50 27.5 Battery chargers 160 0.14 22.9 Stereo 30 0.33 10 Ceiling fans 30 1 30 Drill press 800 0.01 5.7 Air compressor 1,000 0.01 5.6 Printer 35 0.07 2.5 Coffee grinder 100 0.02 2.4

2003 by The Fairmont Press.

New Technologies for Energy Efficiency

Approximately two to eight man-weeks may be needed to complete an initial audit in a typical plant. The actual time is influenced by equipment complexity, forms of energy used, and quality of available drawings. Most industries can justify one man-year for each $1 million spent annually on energy. As the program progresses and savings are achieved, the effort can be down-sized to one man-year for each $2 to $5 million spent each year. Some plants start with a small effort, working on simple projects with fast paybacks. As the projects become more complex and investments increase, more resources are allocated.

References
Asmus, Peter, Californias New Energy Legacy: A Desperate Innovator? California Journal, Vol. XXXII No. 1, January 2001, pp. 1721. Boyle, Godfrey, Editor, Renewable Energy, Oxford, England: Oxford University Press, 1996. Eisenberg, Daniel, Which State is Next?, Time, Vol. 157 No. 4, January 29, 2001, pp. 45-48. Greenwald, John, The New Energy Crunch, Time, Vol. 157 No. 4, January 29, 2001, pp. 37-44. Herda, D.J. and Margaret L. Madden, Energy Resources, New York: Science/Technology Society, 1991. Meline, John W., Why Natural Gas Problems Loom, Consumer Research, Vol. 84 No. 3, March 2001, pp. 10-14. Palmeri, Christopher, California: It Didnt Have to be This Way, Business Week, Vol. 1, January 22, 2001, p. 40. Power Play, Business Week, Vol. 2 No 2, February 12, 2001, pp. 7280. Scientific Staff of the Massachusetts Audubon Society, The Energy Savers Handbook, Emmaus, PA: Rodale Press, 1982. Internet: www.web5.infotrac.galgroup.com Stibbens, Wayne L., Keeping the Energy Management Process Alive, Plant Engineering, Vol. 47 #10, June 3, 1993, pp. 83-84.

2003 by The Fairmont Press.